AU to set up infrastructure fund to make free trade plans a reality

19 February 2021 - 11:20 By Reuters
The AU needs to raise hundreds of billions to fund the construction of infrastructure if it wants to make the free trade area plan a reality.
The AU needs to raise hundreds of billions to fund the construction of infrastructure if it wants to make the free trade area plan a reality.
Image: 123RF/DMITRIJS KAMINSKIS

The African Union (AU) is setting up a fund to finance the construction of much-needed roads, railways and power plants on the continent, its infrastructure head said, turning to new sources of cash due to donor fatigue and higher debt levels.

The continent has an estimated annual infrastructure financing deficit of $60bn-$90bn (R872.5bn-R1.3 trillion), the AU says, making it hard for the body to advance its goal of integrating the disparate individual markets into a single, free trade area.

“Africa is financially starved as far as the need for infrastructure development is concerned,” Raila Odinga, who is the AU's high representative for infrastructure, told Reuters.

The 55-nation AU is now turning to sovereign wealth funds, insurance and retirement funds in countries like SA, Angola, Nigeria Morocco, Egypt and Kenya, to raise the cash.

The funds will be invited to invest about 5% of their holdings, Odinga said, “which is actually going to be more lucrative for those institutions, rather than having funds lie idle”.

Talks with the funds are going on and the AU's experts are setting up the legal and financial structure for the infrastructure fund, which will be administered by the newly formed AU Development Agency, Odinga said.

The move bucks the past trend of dependence on wealthy donor nations and borrowing from financial markets.

China, which has been one of the biggest funders of infrastructure projects on the continent over the past decade, has cut back on lending due to high debt levels among individual nations like Kenya.

“We are now trying to think out of the box,” Odinga said.

The drive to find new ways of funding the construction of roads and railways and other utilities comes as Africa seeks to bring together 1.3 billion people in a $3.4 trillion (R49.4 trillion) economic bloc known as the African Continental Free Trade Area (AfCFTA).

“This infrastructure is urgent for the realisation of the AfCFTA, otherwise it is just going to remain on paper,” Odinga said.

It was critical to connect landlocked nations to ports on coastlines, and complete missing links for transcontinental highways, to facilitate the free flow of goods under the free trade area and lift people out of poverty, he said.

“Africa needs to trade with itself,” Odinga said, citing figures which show intra-African trade is just 15%, compared with intra-European trade levels of 70% and 50% in Asia.


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